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3 New Morningstar Medalists

Susan Dziubinski

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. Morningstar regularly re-evaluates the fund Analyst Ratings on the funds under analyst coverage. Here are three funds whose Analyst Ratings have been upgraded during the past few months. These funds are now among our Morningstar Medalists.

Miriam Sjoblom: We've recently upgraded PIMCO Dynamic Bond's Morningstar Analyst Rating to Bronze from Neutral. This fund used to be called PIMCO Unconstrained Bond, and it had a rough period from 2013 through 2015. It had four different lead managers during that period in quick succession. And when the current lead manager, Marc Seidner, came aboard, he had a pretty rough stretch in 2015 just right out of the gate. There are a few reasons driving the upgrade for the fund at this time. The first is that PIMCO, a little more than a year ago, cut fees on the fund. The fund is not exactly cheap, but it's no longer prohibitively expensive. So, that should help its chances going forward. Also, the team has stabilized quite a bit. Marc Seidner has now been the lead manager here for four years. And more importantly, Seidner has also made some key improvements to the process. This strategy has a wide latitude to invest in a lot of the bond markets' riskier sectors, which means mistakes can be costly. Seidner has been focused more on risk management and making sure that any individual bets or risk factors aren't driving the fund's returns. So, the fund has done pretty well with this more circumspect approach through a variety of markets in the last couple of years and that gives us confidence that what we saw from the fund in 2015 is going to be more of the exception than the rule. That, plus the wealth of resources at PIMCO, should help this fund be one of the better performers in the nontraditional bond category from here.

Jason Kephart: inherit; text-align: left; font-family: inherit;">To kick off the new year, AQR put a new spin on its Risk Parity Fund. The fund is now called AQR Multi-Asset, and we recently upgraded its Morningstar Analyst Rating to Bronze. The fund is still pretty balanced across risk, kind of like Risk Parity. It has a lot of exposure to equities, interest rates, and commodities, and, unlike 60-40 funds that are predominantly driven by the equity exposure, this fund should be driven equally by risks to equities, interest rates, and commodities. As a part of the makeover, AQR switched out its equity exposure from market-cap-weighted indices to its stock-selection model. And the stock-selection model is one we have high confidence in. It picks stocks based on tried and true factors like value and momentum. True, in 2018, the model did struggle when value had a really poor year, and it should struggle when factors aren't doing that well, but overall, we think it's a good long-term strategy. The fund also has its large exposures to commodities and interest rates, which make it look really different than peers and it should perform really differently. So, it could be hard to hold on to this fund if you don't know what to expect. But we think over the long term it has all the components to be a strong diversifying fund for most portfolios.

Emory Zink: Improved resources across the Capital Group American Fund's fixed-income efforts--including improved analytical tools, sharpened quantitative risk models, as well as more coordinated macroeconomic guidance across the fixed-income suite--have all strengthened the process at American Funds Short-Term Bond Fund of America. The addition of a third portfolio manager with a focus on securitized fare as well as the existing principal investment officer and a rates-focused comanager all provide extra oomph to this process. These process enhancements should assist this fund with its goal of providing ballast when markets turn volatile, and for this reason it receives a Morningstar Analyst Rating upgrade to Bronze from Neutral.